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What is the relationship between investment and the real rate of return?This Q is in...

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sara212 | Student, Undergraduate | (Level 1) Salutatorian

Posted July 15, 2011 at 12:42 PM via web

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What is the relationship between investment and the real rate of return?

This Q is in economics class. this Q is under  Basic Macroeconomic Relationships & Interest-Rate-Investment Relationship

 

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted July 15, 2011 at 1:30 PM (Answer #1)

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The real rate of return on an investment is basically the percentage of the investment that you get back each year, adjusted for inflation.  In other words, the real rate of return is a good way of determining how much money you truly made from an investment over a given time.

The relationship between this and investment is that investors are seeking a high real rate of return.  An investor will buy investments that are likely to give such a rate of return.  So, the higher the anticipated real rate of return, the more likely investors are to buy a given investment product.

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